In Mountain view, we meet founder and CEO of Raptr, Dennis Fong. Dennis talks about his story how he came up with the idea and founded Raptr, how the current business model works, as well as he provides some advice for young entrepreneurs.

The transcript of the interview is included below.

INTRODUCTION

Martin: Hi, today we are in Mountain View with Raptr. Dennis, who are you and what do you do?

Dennis: My name is Dennis Fong; I’m the founder and CEO of Raptr.

Martin: And what did you do before you’ve started this company?

Dennis: This is my fourth venture backed company that I’ve started. In the very very beginning I was actually the world’s first pro gamer. So, three out of the four companies that I’ve started are related to gaming. None of the companies are gaming companies; I don’t make games, more gaming platforms. This is my fourth company, two of them we sold for bunch of money and two are still private today.

Martin: And can you tell us a little bit about the story and interrelatedness between these four companies. Is there some kind of track or how they build an ecosystem together or something like this?

Dennis: Sure. So, all four companies are actually community platforms. I just have the passion around bringing people together. And all four, actually, were created to solve my own personal frustrations around something. Obviously, I’m very big gamer so I have a lot of frustrations about things that I think could be or could work more smoothly in gaming. Since no one else is trying to solve those things, I say why don’t we just go and do that? So, the first one was a company called gamers.com. It was a gaming community, platform and portal. That one was acquired. The second one was called Lithium, if you go to lithium.com, like the battery. It’s a community platform for enterprise customers, so we power all of the community solutions for websites like AT&T wireless, Verizon, HP, a lot of big companies. That company, I think, about 400-500 employees now. We’ve raised probably close to a 150 million dollars in venture capital just for that one company, because we’re trying to take a public soon. I left that company actually after about 5 years because I really wanted to get back in the gaming. So I started a company called Xfire, which was an instant messenger design for PC gamers. After two and a half years we were acquired by Viacom and they proceeded to make the best of it. So, about a year or two later, after we were acquired, I left and then I started Raptr, which is also to try to solve kind of the big, fundamental frustrations around PC gaming and that experience.

BUSINESS MODEL OF RAPTR

Martin: Let’s talk about the business model and first starting with the major problems that you identified and which you want to tackle in the gaming industry.

Dennis: So, for Raptr… I was a world’s first professional gamer and the games that I played were all PC games. I was the world champion of Doom, Doom 2, Quake, Quake 2 etc. I’m very very hardcore PC gamer. And anyone that plays PC games knows that, even though clearly it’s the best platform, it’s not the easiest and most seamless experience. It’s not like an Xbox or a PlayStation where you just go download a game and it instantly works, and works great. In PC gaming, every PC… The advantage that an Xbox or console has is that every piece of hardware is the same. Same components, same everything. When the game developer makes the game for the Xbox, as an example, they can optimize it; they can say “We’re going to make the game look as beautiful as it can, while maintaining 30 frames per second”. And once they optimize it once, they don’t have to optimize it again, because every piece of hardware is the same. On the PC, almost every single person’s PC is different. There’s literally millions of different configurations, people swap their hardware, blablabla, which means the games cannot be optimized for any particular set of hardware. So they leave the optimizations in the hands of the user. But the problem is, the majority of users, at least 85% of PC gamers never touched their settings and optimizations, it’s either too hard, they don’t know enough about it, they’re too lazy, whatever it is. Games don’t work that great when you first download it, you have to change your settings, you have to change your resolution, you have to download patches… So, part of our goal, the core of what Raptr is about is trying to deliver experience on the PC, that’s as easy and seamless and effortless as the console. That’s basically what we’ve started as and we’ve added a bunch of stuff on top of that.

Martin: And can you walk us through the process of me being a gamer and downloading your software, I suppose, and then installing it and then you optimize my settings? Can you walk us through this process?

Dennis: Yes, it’s a software application primarily, that when you install it, it detects all the games you have installed, all of the hardware that you’re using in your PC, all your driver versions, all of that stuff. And then it actually reads and detects, each game has its own set of graphic settings, so anti-aliasing, I can’t even say all of them. But there’s sometimes up to two dozen different settings that each game individually has, that you can fine tune. So, what we do is we capture all of that data, record the performance every time you play a game and then, at the end of the session, we actually ship it up to the cloud and then we apply crowd sourcing and machine learning to try to figure out what the optimal setting is for your particular hardware configuration and for the game that you’re playing.

Martin: And then the user can choose whether he wants your optimized setup or whether he wants to remain his own configuration or do you automatically update the settings, based on your machine learning?

Dennis: A user can click “optimize all” and automatically optimize all their games, they’ll see the difference between the settings that they’re currently using and the ones we’re recommending. If they don’t want to use ours, they can just click “revert” and it will switch it back to theirs. All of our users, and we’ve had tens of millions of optimizations that were performed for our users, less than 9% revert back to their original. So, we know we’re providing really good experience for at least 91% of the people and we believe that most of that 9% are the really hardcore people that just like to do this stuff. Because, at least 10% of the audience are really hardcore PC gamer, they’re very picky and there’s, they’re not going to use the solution that works for most people, they have their own preferences. And so for them, I think they just like to see what we’re suggesting and how it compares to their own and they just switch it back to their own.

Martin: Is there some kind of competitive advantage related for pro gamers, for example, if they use optimized setting, so they maybe can have more frames per second or more actions per minute or something like this?

Dennis: We have so for a truly professional gamer for whatever… If you’re a pro gamer, you generally play one game. You’re not going to be a pro gamer in 10 games. For that one game, they are going to have their own settings; we’re never going to be great solution for that pro gamer, for that one game that they’re playing, because they are going to invest a lot of time to figure out what’s the best setting for them. Just like if you’re a professional golfer, you’re going to want your driver at a certain height, what works for ninety something percent of the mass audience, it’s not going to work for Tiger Woods. It’s kind of the same thing. We’re not designing our system for pro gamer, what we’re designing our system for is for someone who doesn’t want to invest the time and resources to figure out what is the absolute best settings for them. Now, to answer your other question, which is “Is it noticeable?”, absolutely, it is noticeable. Because 85% of PC gamers never touch their settings at all. They’re just using whatever is default, but the default settings are not designed for your particular hardware configuration. So, at least 85% of people are playing sub optimally, which means if you have a decently powerful PC, the game could look much better, it can look much better, the graphic settings could be much higher while still maintaining almost the same level of performance. On the other end of the spectrum, you could have maybe 4 or 5 year old PC that, if you’re trying to play the latest games, it might be too slow, it feels, it’s very choppy and there are just a few settings that you can turn down to actually get a pretty decent experience. If you don’t do the research, you’re not going to know what those are, so what we do, for the lower end systems, we’ll turn down certain settings to help you reach a minimum level of performance. That’s effectively what the core of the Raptr technology does. At least in relation to optimizations.

Martin: How is the current revenue model working?

Dennis: It’s a pretty simple revenue model. It’s basically just advertising and we call it CPA. So we get almost two million new users every single month. We have over 30 million users that are currently using Raptr and so we have a pretty good idea, and because of the data that we’re tracking in order to perform the optimizations, we know what games you own. We know what games are you capable of playing, we know what games you might like and so you can come to Raptr and if you try any of those games that we’re recommending to you, we get paid for it.

Martin: On a CPA basis?

Dennis: Correct. On a CPA basis. And then we have traditional advertising, that we run on Raptr as well. We get paid for that as well.

CORPORATE STRATEGY

Martin: Let’s talk about the corporate strategy. Are there any other competitors out there who are doing something similar or tackling a similar problem?

Dennis: You know, we only talked about just one of many things that Raptr does. We also have a whole social platform, think of it as like Xbox live for PC games. Steam does, obviously Steam has, Steam is very popular PC platform. I think they have close to 100 million users now, but Steam is primarily a store first and a community platform second, or maybe even third. We’re a community platform first. And Steam generally works with games that are on Steam. But guess what, actually, the biggest games in the world, like The League of Legends, Hearthstone, World of Warcraft, Diablo 3, World of Tanks, none of those games are on Steam. It kind of sucks as a PC gamer to have to have Battle.net to talk to your Battle.net friends, Steam to talk to your Steam friends, you have League of Legends to talk to your League of Legends friends, it’s a bit of a fragmented market. So, we’re the only agnostic platform that connects you to all of your friends anywhere. In terms of the optimizations, Nvidia actually created software application called the Geforce experience which does something similar for Nvidia customers. So, if you have an Nvidia card, you can download and install the Geforce experience, which optimizes your Geforce video card…

Martin: But you’re doing it for more than one platform, right?

Dennis: We do it for everybody. So, we do it for AMD, Intel, Nvidia, it doesn’t matter, so that’s number one. And number two, our methodology is completely different. Nvidia has, it’s manually tested, they have a test lab where they test their video card to cross onto different games, they’ll come up with what their recommended setting is and then that’s what you’ll get. It’s a great way to start. The problem and the challenge that Nvidia faces is that every single month there’s new driver update, which improves performance across all your games, practically every single month there are game updates for any game that you play that improve performance or impacts performance and then, probably once every few months new video cards, new graphics, new CPUs, new hardware and PC platforms just evolve very, very quickly. The problem with being hands tested, coming up with recommendations in the test lab is it doesn’t scale. So, maybe when you support a hundred games you can get those out the door and they work fine. But if you want to actually give a really accurate recommendations, at least once every three months you have to go through all of those games and all through video cards. So guess what happens when you support 200 games, or 300 games, or 400 games. At some point that breaks. It doesn’t scale. Which they are already facing. We support way more games, probably close to 100 more and that gap is widening because, for us, once we add the support, it just kind of learns on its own. The other thing is, because we’re agnostic, we start off with a test. It’s actually test lab driven initially, as well, and we get that database from AMD and Intel and everybody else, so we start off with that, but then we have all our machine learning, we have 30 million+ users, where we are using that data to learn. It’s kind of like why Wikipedia is as big and powerful and up to date, that’s compared to traditional encyclopedia. Because it’s driven by the crowd. That’s the fundamental difference. But we actually do support Nvidia card as well and we don’t really view them truly as a competitor because Nvidia will never support Intel or AMD. It’s just a fundamentally different model for us and our aspirations are very different than Nvidia as well. Nvidia is basically a tool. That’s almost all it does, it’s basically the optimization stuff, whereas, for us, we do the optimization stuff, and we’re a community, we’ve got a bunch other social stuff that bring people together. Nvidia just does that one thing.

MARKET DEVELOPMENT – GAMING INDUSTRY

Martin: Dennis, you have been a pro gamer and I’m pretty sure you know a lot of a gaming industry. Let’s talk briefly about the gaming industry and the major development. Are there any trends that you can identify in the gaming industry in general?

Dennis: The most obvious one that everyone’s talking about is obviously the trend of that people actually do like to watch other people play games. Anyone that support games knows that a lot of times you were in the same room, you have plenty of fun just watching a buddy over a shoulder playing Counter Strike or something. It’s actually fun. I think the greater world didn’t realized that was a thing until very recently, over the past few years, with the rise of Twitch for live streaming. Twitch just recently got acquired by Amazon for a billion dollars. YouTube, a lot people don’t realize that almost 60% of YouTube’s viewership, in terms of minutes of people watching videos on YouTube, is actually gaming related. So, more than a half. So, yes, people absolutely like to watch other people play and it’s definitely a thing. So, I think the rise of games like League of Legends, Dota, Dota 2, all these games are free to play. They’re fundamentally great games and they are also free and they monetize through the virtual micro transactions and stuff. So you pay for what you want. That model, combined with the rise of a platform like Twitch, it makes it really easy to watch these people play. And the support that companies like Riot, which makes League of Legends, and Valve, that makes Dota 2, have put into eSports. All three of those kind of have… Without one of the three, it wouldn’t be as big as it is. All three kind of happening at the same time have helped each other turn in it… So, for people that don’t know, eSports is also a thing. The latest Dota 2 tournament had over 10 million dollars cash. The winning team, which is made up of five people, each one over million dollars. Five million dollars for the first place team. That’s a lot of money. A year ago, the first place team, I believe, split a million dollars among each of them, which is still a lot of money. So, it’s gotten up almost, I think it’s close to 10x in a year. So, it’s a confluence of those things that kind of have helped propel gaming more into the spotlight of the mainstream consciousness.

ADVICE TO ENTREPRENEURS FROM DENNIS FONG

Martin: Dennis, you’ve started four companies, you learned a lot. Are there any mistakes or learnings that you would like to share with our readers?

Dennis: Too many. Making mistakes is part of life. I have this thing that I believe in. This is kind of how I used to play games and how I operate companies, how I manage people. As a startup, you have to take risks because that’s fundamentally one of your biggest advantages over a big company, is that you can take bigger risks because you don’t have kind of innovator’s dilemma, where you’ve got this really successful product and 10s of millions of customers and you’re afraid of either eat in your existing business or what have you. So, a startup can move much more quickly, can take more risks, which means that you’re going to actually be failing a lot of the time. We launch plenty of features and stuff that no one ever uses, or people don’t use for a long time, you’re failing. And it’s actually totally OK to fail. I actually expect people to fail within my organizations, but the key is, those failures, you need to structure them in a way that doesn’t cripple your company, that’s number one. Number two is you have to learn from your mistakes and not make that same mistake again. So, my only thing that I ever tell anybody when we first hire them is “If you make the same mistake twice, you’re not going to last here”. But, it’s fine to take those risks. I think making mistakes is part of being a startup. I think being afraid to fail, being afraid to take a risk is actually probably the biggest risk of all.

Martin: Is there some kind of mechanism where you share people who made mistakes with other people, so that they can learn and don’t do the mistake themselves?

Dennis: The organizations, especially in the beginning, are not that big. Everyone learns. The mistake, that I think some entrepreneurs make, is they will be really hard on the people that are failing. You have to understand why are they failing, first of all, and what risks they took. If you had very good thesis going in and you took that risk and you failed because maybe it didn’t work out, that’s perfectly OK. And you have to be OK with that as a startup, to be willing to take those risks. So, those risks we take every single day, they can be on very small scale or larger scale. Obviously, we will not bet the whole company on one thing. That’s a whole another thing, that’s not what I’m saying. But you have to take calculated risks and be OK with failing most of the time, because that one time where you took that big risks and it paid off is what might make your company. It’s often what makes your company.

Martin: Any other learnings that you would like to share?

Dennis: I think that the climate here in the Silicon Valley is a little bit different than other parts of the world, potentially. I say the biggest advantage that a startup has also is speed. So, the way I operate my companies, especially in the earlier days, we move at lightning speed. It’s kind of like the “Blitzkrieg” kind of approach, especially when it comes to hiring. You’ve probably heard stories of how difficult it is to hire, because everyone is competing for the same talent. We have a particular methodology that I use at my companies where, we call it the shark & awe approach where basically a lot of times… Let’s say we have an engineer we’re thinking of hiring. We’ll typically do one phone screen, a phone interview with them, just high level, try to get sense how smart they are. We’ve already looked through their experience in their resume. Assuming that they pass the phone interview, we schedule them to come in. We’ve actually booked basically the whole day, so they’re not coming in to meeting one, or two, or three people, we’ve scheduled out them to meet all of the key people that they need to meet. So, if they are server engineers, an example, they’ll have interview scheduled with almost every single person that they need to meet, every single server engineer that we want an interview with, and by the end of the day, either the VP of engineering in that case, or maybe me will sit down with that person. Basically, if you’ve made it through the whole day it’s pretty likely that we’re going to hire you because at any point of time, any of the people that they’re interviewing with can stop the interview and then they’re done. And they will just walk them out. We just say “Set aside the whole day, we don’t know how long it’s going to take” so they don’t know that they failed per se, unless it’s the first interview, but they can just stop the interview and they’re done and that, obviously, is a no hirer. If they’ve made it through the whole day it means that they’ve passed every interview. Basically, by the end of the day, let’s say I sit down with them, I give them a sense of what Raptr is about, I give them kind of a pitch of the vision, I’ll do a little bit interviewing myself, but at that point I already know, before I walk in, actually, I already know – yes or no. So, at the end of the day, I will basically say “Hey, can you give me your references right now? We’re going to give them a call later tonight”. So I actually call their references that night and basically tell them, assuming the references check out, we’re going to give you an offer some time tomorrow and you need to make a decision whether you want to accept or not within 24 hours after that.

Martin: And when is the typical starting date after this?

Dennis: Two weeks. We usually give them two weeks because we don’t want them to burn bridges with their previous employer. But that’s how quickly we move. I literally say “Here’s the offer and you have 24 hours to accept” and I said the reason why we give you 24 hours is not because, some people go like “I have my second round or third round interview with Facebook on Friday, next week I have an interview with Google scheduled” or whatever, any hot engineers can have multiple interviews going on at different stages. Our thing is, we’re not trying to be assholes by forcing you to make a decision. What we want is people that are extremely exciting and passionate about working at Raptr. So, we know we want you. Most of the times they haven’t gotten an offer yet from Facebook or whatever, they’re still going through many rounds of interviews. So, what we tell them is that the prospect of maybe getting an offer from Facebook or Google, wherever it is they’re interviewing at, is more interesting and exciting to you than being a part of what we’re doing, then you should just go do that, because we want people that are passionate about what we’re doing.

Martin: And stay with you for some time?

Dennis: Yeah, they’re excited about the vision that we’re doing, excited about the team that they… Because we have a really smart team of people, they usually can get that sense of how excited and how smart our team is. And that’s the other thing is, you have to realize for anyone that’s really good, that you’re interviewing, it’s a two-way interview. A lot of people just try to drill them, or whatever, they’re very, they don’t realize that they’re interviewing you and how smart your team is, are these people that I want to work with as much as you’re interviewing them. So, that’s the part of the culture, you have to build as well as to get these people to understand it’s a two way thing. I can tell you, for example, at Raptr, the first 20 people we hired, we had a 100% close rate. Every single person that we gave an offer to took it. It’s unheard of. I’ve had that kind of track record with most of my companies, following this approach. Now, the reality is, of course, part of it is, you don’t want them to get that offer from Facebook and then have to be like “Oh, this one’s worth… Can you match this offer?”, because you never, as a startup, you can’t offer them a salary as high as Google or Facebook and any of these guys. So you kind of do want to cut them off before they get there. The trick is, of course, putting in… If you’re like “Hey, here’s 24 hours because we don’t want you to go talk to Google”, most of them will be like “OK, screw you, forget it”, but you have to kind of, a lot of business.

Actually, every part of your business, running a company, doing a partnership, marketing, whatever, it’s actually about putting things in the right context. Actually, most of the time it’s about context and frame of reference. Like, we’re negotiating a salary and you’re like “I need 150 thousand dollars”. If I just say “No”, that may be the breaking point, a walk away point. If I said “I can’t do that because every single person that’s joined our company so far, and people that are far more experienced than you, have agreed to take a pay cut because of how much they believe in what we’re doing. And if I paid you a 150 thousand dollars, even though I think you’re worth it, it breaks the whole model, because everyone here, there’s a guy that has 10 years of experience more than you that was making 500 thousand dollars a year at Google, he’s making less than 150 thousand dollars, so it’s kind of weird for me to give you 150 thousand dollar salary. Maybe I can make it work at a 130 thousand dollars if you think that will work for you.” That is a very different answer then “I can’t give you… No.” It doesn’t feel like a negotiation. I use the same thing in everything that we do.

So it’s actually a lot of business is about trying to see things through other people’s eyes. If you’re trying to partner with a company, it’s the same thing. We need to pay $X, and they’re like “Well, that’s too much” and I was like, part of it can be like, I would say “Let me just help you understand our cost. We’re going to put 10 people on this”. Let’s just say we’re trying to do a deal for one million dollars. I can say “Look, I think it’s going to cost us 10 people, a 10 person team, which is 25% of our R&D budget towards this for a year. Each person on average is going to cost us 100 thousand dollars”, Silicon Valley is about $10.000 per month per employee, and it’s what it actually costs, generally. So I would say “You can do the math. If it’s 10 people, $10.000 a month, that’s a $100.000 a month for that team. It’s going to take us a year to build this team. That’s 1.2 million dollars that’s going to cost us. So, if you’re asking for $X I just want to first help you understand our cost. And then we have to make money. So, a million dollars is not going to cut it. If our cost is 1.2 million dollars, I think reasonable if we make 50%, than it’s going to be 1.8 million dollars.” Lot of people think of negotiation as what they see in the movies, you know like that. While in reality, if you can just help people see a little bit of the context of why you’re asking for it, it makes it go a lot more smoothly. It’s particularly important when you’re hiring, because these are people you have to work with after. So, you can’t go to war and have this really contentious negotiation. And a lot of times partnerships, sales, deals, whatever it is, it’s the same, you can’t go to war because the next day you’re going to have to be friends so you’re going to be allies or working together and so you have to help people understand the context of what you’re asking for.

Martin: Great. Thank you very much, Dennis. And I think we should now start playing games, maybe one on one later on, I don’t know. Thank you very much.

Dennis: Thank you.

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